What have we learned so far? Innovation is important for competitive advantage. Innovation is a complex process leading to innovative outcomes that benefit the company and the consumer. Innovations can be categorized in many ways, internally and externally. Innovation involves solving problems and creating value.

Innovation can be radical (blue ocean) or incremental (red ocean). A company needs to define it’s innovation strategy. We have looked at examples of creating a culture of innovation (Best Buy), of business model innovation (experience-wine), and considered the importance of learning.

Tonight… Discussion of processes for innovating, and an example. Stamypor: applying a formal stage gate process to both radical and incremental innovations.

Formal innovation processes

Formal innovation Identify a problem > find a solution Stage Gate System How to move a new-product project from idea to launch. http://www.prod-dev.com/stage-gate.shtml

Balancing Risk with Investment Accumulated investments progressively increase Level of Risk Failure risk progressively decreases due to stage-gate process Time

Informal innovation processes

Research Laboratories (Labs) Informal Innovation Processes Experiment with solutions > find a problem Example: Think Tanks Community of experts, intellectuals, scientists, or other appropriate individuals brought together for the purpose of “thinking” about prescribed topics. A think tank's purpose is to raise awareness about certain topics and "gather" communal thoughts toward that topic. Research Laboratories (Labs) http://www.zurich.ibm.com/

Collaborative innovation

Collaboration: … is a purposeful, strategic way of working that leverages the resources of each party for the benefit of all by coordinating activities and communicating information within an environment of trust and transparency. … opens up the possibility of accessing the resources, knowledge, and relationships the other party has and using both parties’ resources for mutual benefit. It also raises the specter of counting on someone who has no stake in your success. Collaborative Network Management: An emerging role for alliance management. Volume 6 in White Paper Series, Collaborative Business by Jeffrey Shuman and Janice Twombly, The Rhythm of Business, April 2008.

Collaboration Innovation Is prevalent. Requires: Trust Communication Connections

Innovation suffers from Opportunism Risk Collaborative Innovation: Implications of Partner Choice on Risk & Reward Innovation suffers from Opportunism Risk Firms forming R&D alliances with prior partners benefit from the smoothness of technology transfer, which comes from both reduced information asymmetry and increased trust. But reduced information asymmetry can also lead to increased risk of partner opportunism. Innovation benefits from Greater Trust and Reduced Information Asymmetry. Monetary risk & return Stranger Acquaintance Friend Number of Prior Partnerships “Friends, Acquaintances, or Strangers? Partner Selection in R&D Alliances” by Li, Eden, Hitt & Ireland. Academy of Management Journal, 2008, Vol. 51:2, 315-334. As the number of prior relationships increases, synergies from complementarities in information symmetry decrease and eventually are exhausted. Eventually, the prior partners share full knowledge about each other, the alliance is successfully complete, and the needs gap no long exist, in that the two partners no longer have any relevant information that may be applicable for future alliances. The reduction in information symmetry also increases a firm’s vulnerability to opportunistic behavior by a prior partner, raising opportunism risk for the local firm.

Innovation Communities Connecting your company with people outside the organization “whose passions match your problems” (Gary Hamel).

Larry Huston, former vice president for innovation and knowledge at P&G “You can’t possess all the science and brilliant minds … In our R&D organization we have 7,500 people in 150 science areas, but there are 1.5 million high-quality people outside P&G. It doesn’t take a genius to figure out that if you can engage the brains of your 7,500, plus the key ones from that 1.5 million, you can build better products.”

Examples of Innovation Communities P&G’s InnovationNet Scientific networks such as InnoCentive, NineSigma, UTEK’s U2B Google Labs where services like Google Maps, Google Desktop, Google News Alerts and Google Video first started IBM’s AlphaWorks

Contribute to progress in mobility What company is this? Contribute to progress in mobility     "We have one profession and one mission: contribute to long-term progress in the field of mobility."

MAKING IT HAPPEN: MICHELIN CORPORATION Sells over 200 million tires per year in 170 countries 17.2% of World Tire Market 2007 Net Sales = 16,867 million euro 2007 Net Income = 774 million euro 2007 Operating Income = 1,645 million euro 2007 Operating Margin = 9.8%

MISSION To make a sustainable contribution to progress in the mobility of goods and people by constantly enhancing freedom of movement, safety, efficiency and pleasure when on the move.

STRATEGY To achieve its objectives in an ever demanding environment, Michelin focuses on three levers: Keep delivering ever higher-performing products and services to optimize professional customers’ value and bottom line through customization and innovation; Accelerate expansion in the higher-growth markets; Improve competitive position.

INNOVATION STRATEGY INNOVATE in order to… LEADERSHIP THROUGH INNOVATION Ever since Michelin was first set up, the dynamics of innovation and the search for new technologies for the customer's benefit have been at the core of Michelin's strategy and success. INNOVATE in order to… Leverage differentiation, Accelerate growth, Strengthen competitiveness

INNOVATION How do innovations like this come about in a large, structured organization? Formal Processes (Ladoux Technology Center) http://www.michelin.com/ladoux/index.html?lang=en Informal Processes (Think Tank) Partnerships

Example The Michelin X One tire Showcased at the Beijing International Bus Trade Show, the MICHELIN X One tire was elected as the original equipment of the new bus fleet serving Beijing International Airport. The key benefits built into the urban version of the tire are comfort, grip and a noiseless ride.

Black donuts? How are tires made? What comes after the radial tire? Tires for …?

MICHELIN’S INNOVATION TIME LINE

STAMYPOR What type of innovation is Stamypor? Why have a separate NBD unit? What should Rein Nieland report to the NBD board?

Stamypor Progress Against Criteria Stamypor could not be framed within the charter of one of the BGs. Technology fits the company culture, strategy and competencies. Synergy in raw materials, technology and market. Fits within the NBD portfolio. No high upfront costs.

Financial criteria? Potential turnover 3-5 years; €1 – 3 million? Gross margin > 50% IRR (10 years); >20%

Lessons Stage gate process Team composition Technical problems Market problems Financial issues